Wells Fargo & Co. (WFC), the largest U.S. home lender, would survive $29.7 billion of loan defaults under a company-run stress test and stay above minimum regulatory capital levels in a severe economic downturn.
The bank's Tier 1 common ratio would fall as low as 9.9 percent under a severely adverse scenario, above the 5 percent minimum set by U.S. regulators, the San Francisco-based firm said today in a presentation on its website. Wells Fargo would set aside $48.5 billion in provisions, $18.8 billion more than projected loan defaults over nine quarters through June 2015. The firm would incur $3.8 billion in pretax losses in that span.
The biggest U.S. lenders must conduct so-called mid-cycle stress tests using their own scenarios and disclose a summary of the results. While the tests are submitted to the Federal Reserve, they aren't related to approval of the banks' capital plans, which help determine dividends and share repurchases.
Wells Fargo's projections assume home prices declining 20 percent and commercial real estate prices falling 30 percent. The long-term mortgage rate would fall as low as 2.58 percent.